Discover Financial Services is an American financial services company, which issues the Discover Card and operates the Discover and Pulse networks. Discover Card is the third largest credit card brand in the United States, when measured by cards in force, with nearly 50 million cardholders.

DISH Networks (NASDAQ: DISH) is the third largest provider of paid-TV in the United States and, as of June 20, 2010, has a customer base of approximately 14.318 million.[1] The Satellite Industry Association (SIA) released its 2009 State of the Satellite Industry Report, showing a 19 percent growth in global revenues for the commercial satellite industry, while worldwide revenues in 2008 were $144.4 billion.[2] The industry, however, continues to face challenges from traditional cable companies like Comcast, Cablevision, and Time Warner Cable which are not only much larger than their satellite competitors but also have the capacity to offer bundled services including phone and high speed Internet. As a result, cable companies generally receive significantly more revenue per subscriber per month (ARPU).

Dish customers have access to hundreds of video and audio channels, HD channels, international channels, state-of-the-art interactive TV applications, and award-winning HD and DVR technology. The Company provides programming, which includes more than 280 basic video channels, 60 Sirius Satellite Radio music channels, 30 movie channels, 35 regional and specialty sports channels, 2,500 local channels, 220 Latino and international channels, and 50 channels of pay-per-view content. As of December 31, 2009, the Company provided local channel coverage to markets covering about 97% of United States television households. In addition, it provided high definition (HD) local channels to markets representing approximately 93% of United States television households.[3]

Contents
1 Company Overview
1.1 Business and Financial Metrics
2 Trends and Forces
2.1 Satellite companies have difficulty in competing with cable companies on the basis of bundling
2.2 DISH faces significant legal exposure to two key legal issues
2.3 Satellites are risky business
3 Competition
4 References
Company Overview

Dish's programming content is delivered to programming centers by fiber or satellite and processed, compressed, encrypted and then uplinked to satellites for delivery to consumers. Dish subscribers receive programming via in-home equipment that includes a small satellite dish, digital set-top receivers, and remote controls. Some advanced receiver models feature DVRs, HD capability, and dual-tuners which allow independent viewing on two separate televisions. Some receiver models are Internet-protocol compatible which allows consumers to view movies and other content on their televisions via the Internet and a broadband connection.

Business and Financial Metrics
In the third quarter of 2010, Dish's revenue increased 11% to $81 million. In the response to the drastic reduction in spending by low-mid level customers, Dish has been attempting to focus on higher-end video customers. It lost a net 29,000 customers, the second consecutive quarterly loss, finishing the third quarter with 14.3 million customers. Although it lost customers, the profit per customer has increased. Its earnings tripled to $245 million from $81 million in the year-ago period.[4]

In the second quarter of 2010, Dish's revenue increased 9.1% to $3.17 billion. However, after adding subscribers for the past five consecutive quarters, Dish lost 19,000 subscribers in the 2Q10. Dish also lost CenturyLink, a local telecommunications company, to DirecTV when its contract expired July 31. In addition, Dish had to pay $30.7 million in litigation-related expenses this quarter due to its ongoing lawsuit with TiVo over digital recorder technology. Dish's net income increased $63 million from last year to $257 million.[5]

In 4Q09, Dish's revenues increased 1.4% from 4Q08 to $2.96 billion by attracting budget-conscious customers with aggressive promotions. In this quarter, Dish added 249,000 net subscribers. Starting from 2Q08, Dish suffered four straight quarters of subscriber declines, the first subscriber declines in the company's history. However, the past three quarters have seen increases in customer subscriptions. These increases are attributed to an aggressive advertising campaign in 2009 that attacked DirecTV, claiming that Dish's TV plans were cheaper. DirecTV then sued Dish for false advertising and the case is still pending. Dish's profit declined 17.5% this quarter.[6]

Dish's profit fell 30% from $903 million in 2008 to $636 million in 2009. Annual revenue increased slightly from $11.62 billion to $11.66 billion. Dish gained 422,000 new subscribers in 2009 and finished the year with 14.1 million subscribers.[7]


The greatest cost DISH incurs is the acquisition of a customer. Each new customer is a net loss for the company, but the company sales strategy is to recoup the cost by ensuring the customer stays with the company[8]. This customer turnover rate is known as churn; a measure of the number of individuals or items moving into or out of a collection over a specific period of time.

DISH attempts to counter customer churn by providing low cost programming, friendly customer service, and quality equipment. The margins are crimped slightly, but it is far less costly than losing the customers and constantly having to sign up new customers to offset those that left.

Trends and Forces

Satellite companies have difficulty in competing with cable companies on the basis of bundling
The entire satellite television market is facing stiff competition from other companies that are able to bundle telephone services, high-speed internet, and entertainment into one package. This coupled with cable companies’ already stronger ability to provide local and other programming in a larger number of geographic areas makes it very difficult for DISH to expand their subscriber base and effectively compete. DISH has not been ignorant of these developments, and they partnered with AT&T to provide high speed internet services in certain markets.[9] AT&T Inc. now offers DISH Network programming bundled with broadband, telephone and other services, accounting for approximately 25% of gross subscriber additions.[10] However, AT&T and other telephone companies such as Verizon have begun laying high speed optic fiber lines that are capable of transmitting video services bundled with traditional phone and high speed internet directly to millions of homes, making them as much a competitor as a partner.

DISH faces significant legal exposure to two key legal issues
The first is its purported copyright infringement of TiVo (TIVO) by creating and selling its own digital video recorder (DVR). A Texas jury concluded DISH infringed on certain TiVo patents through the creation and distribution of their own DVR devices.[11]This was appealed and during January 2008, the U.S. Court of Appeals upheld the Texas jury verdict that certain of DISH’s DVRs, infringed a patent held by TiVo. DVR is an increasingly popular device, and if subsequent appeals are overturned, it would be a huge blow to DISH, who has thus far spent $128 million in legal fees. A total of $105 million was also given to TiVo in October 2008, when the Supreme Court denied Dish Network's request for Certiorari.[12]

The second legal issue confronting DISH is the expiration of the Cable Act in 2007. The Cable Act prohibits exclusive contracting practices with cable affiliated programmers, from which DISH purchases a large percentage of their programming. The Cable Act expired in September 2007, but was extended for another five-year period.[13] Cable companies have appealed the FCC’s decision, and this litigation is pending. The expiration of this act could adversely affect DISH’s ability to negotiate and obtain high quality television programming.

Satellites are risky business
Satellites are vulnerable to solar storms, and accidents in space that cannot be repaired. The satellites that DISH launches to broadcast have a 12-year lifespan, and spare solar arrays, but if 8 of the 104 solar arrays malfunction or breakdown then the entire satellite is offline. Launching a replacement is expensive, and has its own risks in takeoff. Certain launch vehicles that may be used by us have either unproven track records or have experienced launch failures in the past. Currently DISH has 12 satellites in orbit, of which 5 are owned by the company itself while the rest are leased from third parties.[14]

Competition

DISH faces competitors in the satellite television market and in the home entertainment sector at large. The DirecTV Group (DTV) is its main competitor in the satellite television market, and DirecTV has several advantages over DISH such as larger size and financial resources as well as greater penetration in the United States. DirecTV is sold in more electronic retailing stores than DISH, and as a result DISH must spend more on advertising to spread the word of its existence than DirecTV. DirecTV is also in the process of launching HDTV. DISH is also doing this but is behind DirecTV. However, both of these companies, and the satellite television market in general, face stiff competition from the firmly entrenched cable television providers. The resources, size, and bundling capabilities of these companies pose stiff competition to the satellite television market. [15]However, their key advantage at the moment is their greater HDTV penetration rates, and capabilities. If there is a shift in preferences of consumers to HDTV, then cable television providers are the best position to meet that demand.

DISH vs. DirecTV
Company Subscriber Acquisition Costs (per customer)[16] Churn Rate [17] 2009 Net Income Profits (Millions) Number of Subscribers
DISH $720 1.86% $554 14,100,000
DirecTV $715[18] 1.47%[18] $1,300[18] 17,621,000[18]
Satellite Entertainment Competitors: These companies offer and provide satellite based entertainment to households.

DirecTV: DirecTV is a provider of digital television entertainment in the United States and Latin America. The Company operates two direct-to-home (DTH) operating segments: DIRECTV U.S. and DIRECTV Latin America.
Cable Television Competitors: These companies provide clients with the cable television. These are some of the larger providers of cable entertainment, but there are many local companies as well.

Time Warner Cable:Time Warner Cable Inc. (TWC) is a cable operator in the United States, with systems located mainly in five geographic areas: New York State (including New York City), the Carolinas, Ohio, southern California (including Los Angeles) and Texas. TWC offers video, high-speed data and voice services over its broadband cable systems to residential and commercial customers. In addition, TWC sells advertising to a variety of national, regional and local advertising customers.
Comcast: Comcast Corporation is a provider of video, high-speed Internet and phone services (cable services), offering a variety of entertainment, information and communications services to residential and commercial customers. As of December 31, 2009, the Company’s cable systems served approximately 23.6 million video customers, 15.9 million high-speed Internet customers and 7.6 million phone customers and passed over 51.2 million homes and businesses in 39 states and the District of Columbia.
 
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